Obamacare Subsidies: Are You Eligible?

Are You Missing Out on Obamacare Subsidies?

Obamacare subsidies
Obamacare subsidies are designed to help middle-class families afford health insurance. Photo: PeopleImages/Getty Images

Are you one of the 10.4 million Americans who are missing out on Obamacare subsidies? Kaiser Health reported that 60% of those who deserved subsidies didn't get them. Why? They simply didn't sign up for insurance on the health insurance exchanges.(Source: Kaiser Foundation, Marketplace Enrollees Eligible for Financial Assistance as a Share of the Subsidy-Eligible PopulationKaiser Family Foundation, April 19, 2014.)

Most people think the Affordable Care Act was designed to help the poor. In fact, more than half (56 percent) of the subsidies will go to middle-income families. For example, that's a family of four with an income between $47,100 and $94,200 a year. They are caught in the trap where they make too much for Medicaid, but not enough to afford private health plans. According to Families USA, they are typically hard-working parents in jobs such as food service workers, administrative personnel, and health aides that don't provide health insurance. (Source: Kelly Kennedy, “Study: Most Health Subsidies to Aid Working Families," USA Today, April 18, 2013. Indiana Report: Working Individuals in Key Economic Sectors Make Up the Largest Group to Benefit by Extending Health Coverage, Families USA, August 6, 2014.)

Obamacare will spend $1.039 trillion on subsidies for these middle-class families between 2015 and 2024.

That's more than the $792 billion it will spend on expanded Medicaid and CHIP for the poor. (Source: “Comparison of CBO’s Estimates of the Net Budgetary Effects of the Coverage Provisions of the Affordable Care Act,” Congressional Budget Office.)

Make Sure You Get the Subsidy You Deserve

The easiest way to see if you'll get a subsidy is to go to Healthcare.gov.

You'll enter your expected Adjusted Gross Income and it'll tell you how much of a discount you'll get. Here's How to Sign Up for Obamacare in 4 Easy Steps.

Check the chart below. If your household income is less than this, then you're eligible for a subsidy:

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If your income is up to 225 percent of the poverty level, you can save even more than most on your out-of-pocket costs. Any insurance company that sells on the exchange must reduce these costs to an affordable level. For more, see Out of Pocket Costs.

How to Calculate Your Household Income

You'll need to estimate your household income for the year. For this purpose, your household is anyone who needs insurance, while the income is anyone who's included on your tax return. The IRS counts your household as: 

  • You and your spouse. You'll have to file jointly for the year you want subsidies, and include their income, even if you only want insurance for yourself.
  • Your children who live with you, even if they file their own returns.
  • Any dependent listed on your tax return, even if they don’t live with you.
  • Anyone under twenty-one who you take care of and lives with you.
  • Your unmarried partner only if he/she is your dependent for tax purposes, or the parent of your child.

Don’t include: your unmarried partner’s children if you don't list them as your dependents; other relatives who live with you, if they file their own tax return and aren’t your dependents; your children, if you and the other parent are divorced and you aren’t claiming them as a tax dependent.

An easy way to estimate your income is to start with your adjusted gross income (AGI) from last year's tax return. That's line 37 on form 1040, line 4 on form 1040 EZ, and line 21 on form 1040 A. Add excluded foreign income,nontaxable Social Security benefits, and tax-exempt interest if you have them (most people don't). Don't include SSI (Supplemental Security Income).

If you think you'll get a raise next year, change jobs, or add/subtract any dependents in your household, estimate how that will change your income.

 For more, see How to Estimate Your Income.

How to Get Your Subsidy

The subsidy is added to your income tax refund. Fortunately, the subsidy is automatically used to lower your monthly premium. If you don’t file taxes, you won't get a subsidy. Find out if you are Exempt From Obamacare.

However, if your income increases during the year, then your subsidy will be reduced. Your tax bill will be larger as a result. To avoid that, update your account on the healthcare.gov website with any significant income or household changes.

How Much of a Subsidy Will You Get?

The subsidy is based on the cost of a Silver insurance plan. That is one of the four levels of insurance on the exchange. 

  1. Bronze plans pay 60 percent of your healthcare costs, while you pay 40 percent overall. They have lower premiums.
  2. Gold plans pay 80 percent, while you pay 20 percent. Most Gold plans have a higher premium, but lower deductible, than Bronze plans.
  3. Silver plans pay 70 percent, and you pay 30 percent. Deductibles tend to be in the $2,000 for singles/$4,000 for families range.
  4. Platinum plans pick up 90 percent of healthcare costs, and most have zero deductible.

All provide the same ten essential health benefits, provide free preventive care, and comply with the other ACA regulations. The difference in coverage will show up in the premiums, deductibles, and copays.

The subsidy is based on the guarantee that you pay no more than 9.5% of your income for the second lowest Silver plan. It's calculated by taking that cost and subtracting 9.5% of your income. You can then apply this amount to the plan you choose. (Source: “Focus on Health Reform," Kaiser Family Foundation.)

Here's an example of how it might be calculated:

  • Cost of the Silver plan = $9,500 a year.
  • Your income = $50,000.
  • 9.5% of your income = .095 * $50,000 =  $4,750.  
  • Your subsidy = $9,500 - $4,750 = $4,750.

Fortunately, the healthcare.gov exchange figures it all out for you.Your actual subsidy could be much greater, or much smaller, depending on your income, the number of people in your family, your age, and whether you smoke or not. For more, see How Much Will Obamacare Cost Me?

How the Subsidies Work 

The subsidies are based on the Federal Poverty Level. This defines who the government considers to be living in poverty, based on income and family size.To find out more on that, and how it's calculated, see Federal Poverty Level: Definition, Guidelines, Chart

You don’t have to be at the poverty level to receive Obamacare subsidies. Even if your income is four times greater than the FPL, you’ll still get something. There are five levels of subsidies. 

  1. The first income bracket is 138% of the FPL (38% more than the FPL). This income level qualifies for Medicaid. However, your state had to agree to expand it, and half did not. 
  2. 150% of the FPL. All the remaining income levels receive a subsidy. The closer you are to the poverty level, the larger your subsidy.
  3. 200% of the FPL (twice the poverty level).
  4. 250% percent of the FPL.
  5. 400% of the FPL (four times the poverty level).

Subsidy Perception vs Fact

The Kaiser survey found that nearly half of those getting government subsidies through the exchanges didn't know it. A Department of Health and Human Services report says 87% of those enrolled in the federal exchange are getting government subsidies, but only 46% told Kaiser they were. (Source: “Survey Says Obamacare Isn't Doing So Well,” Investor’s Business Daily, June 24, 2014.)

That’s probably because 43% said they found paying their premiums "difficult." However, the Congressional Budget Office found that premiums under Obamacare were 16 percent lower than originally projected. The CBO estimates that 60% of those who get plans from the exchanges will pay less than $100 a month for individual coverage. (Source: Ellen Goldbaum, “Who Will the Affordable Care Act Benefit the Most?” University at Buffalo, October 1, 2013.) 

More on Obamacare

For more on how to save money on Obamacare, see my book The Ultimate Obamacare Handbook (2015 - 2016).